Employee Benefits Alert – Fall 2011
Advanced Written Notice of Benefit Changes
There has been a lot of confusion recently regarding the 60-day advance notice requirement for group health plan changes brought about by Obamacare. Here is our attempt to clarify and simplify the issue for our Employee Benefits audience.
Before Obamacare, employers were required to notify participants in writing of changes to their health plans only if the changes were a “material reduction” in benefits. This notification could be made up to 60 days after the employer took board action to implement the “material reduction” (e.g., adopted a plan amendment). Alternatively, changes to the contents of a Plan’s Summary Plan Description were required to be communicated to participants in writing called a “Summary of Material Modifications,” that had to be given no later than 210 days after the close of the plan year in which the change took place.
Obamacare, as enacted, required 60-day advance written notice of any material changes to health benefit information. The statutory text was written in an ambiguous fashion which suggested that the advance notice was required immediately for any material health benefits change, including increased premiums, hence the confusion and concern. Subsequent interpretation of the text clarified that the 60-day advance written notice only applies to material changes to the specific information contained in the Summary of Benefits and Coverage disclosure document (SBC), which was a new disclosure instrument that had not yet been defined in any detail.
On August 17, 2011, the Department of Health and Human Services issued proposed regulations in two parts on the form, content and delivery of SBCs (the second part includes a template SBC document, which can be found by clicking here or by contacting any member of our team). The proposed regulations make it clear that the advance notice requirement applies only to changes in the content of the SBC, and further narrow this requirement to material changes occurring mid-year. (The regulations refer to a policy year but it equally could be a plan year for a self-funded arrangement.) The proposed regulations further clarify that material coverage changes that take effect with a new policy or plan year may be disclosed in the SBC that is distributed each year upon renewal of the group policy (or at least 30 days prior to the first day of the new plan year, for plans that are self-funded or renew coverage automatically).
For purposes of the new rules, “material” means a change that, on its own or taken together with other contemporaneous changes, would be considered by the average plan participant to be an important change in coverage or benefits. The SBC regulations add that a material change could be an increase in benefits affecting SBC contents, as well as a reduction in coverage. Employers with group health plans now get to satisfy two disclosure requirements with one notice in that a timely distributed SBC will also fulfill the requirement to:
- distribute a Summary of Material Modifications (due within 210 days after the close of the plan year in which the change occurred); and
- provide written notice of a material reduction in benefits (due 60 days after the employer action to implement the change).
DOL to Re-Propose Rule on Definition of Fiduciary
On September 19, 2011, the Department of Labor’s Employee Benefit Securities Administration announced that, in early 2012, it would re-propose its controversial rule that redefines “fiduciary” under ERISA. The DOL’s decision and announcement comes in response to considerable controversy from the public, service providers and members of Congress.
Most of the proposed rule, as well as EBSA’s announcement of the re-proposal, dealt with the role of investment advisors for 401(k) and similar plans, including part of the proposed rule that would make ESOP appraisers “fiduciaries.” Currently, ESOP appraisers enjoy a 35-year-old exemption from the definition of “fiduciary” while most advisors to 401(k) plans do not satisfy the current test to be a “fiduciary.”
Once the new rules are proposed in early 2012, there will be another period for further comments. As the re-proposal makes clear, the DOL does pay attention to these comments, so those interested in this issue should consider participating in the public comment period. Meanwhile, there have been bills and hearings in Congress regarding this issue, including S. 1232 which would exempt appraisers from being ESOP fiduciaries.
IRS Announces Plan Limitations for 2012
On October 20, 2011, the IRS announced the cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for 2012. Many of the pension plan limitations will change next year due to the increase in the cost-of-living index which triggered the statutory thresholds that require adjustment of plan limitations. However, there are some limitations that will remain unchanged. Highlights of both the adjustments and unchanged limitations include:
- The ESOP account balance thresholds for extending a participant’s distribution period increased from $985,000 and $195,000 to $1,015,000 and $200,000.
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
- The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
- The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
- The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
- The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.
Please see the IRS chart below for a further explanation of the 2012 adjustments to pension plan limitations due to the increase in the cost of living index.
COLA Increases for Dollar Limitations on Benefits and Contributions
401(k), 403(b), Profit-Sharing Plans, etc.
ESOP Limits – 409(o)(1)(C)
Threshold in excess of ESOP limit for determining additional years for distribution beyond 5 years
|Annual Compensation – 401(a)(17)/404(l)||250,000||245,000||245,000|
|Elective Deferrals – 402(g)(1)||17,000||16,500||16,500|
|Catch-up Contributions – 414(v)(2)(B)(i)||5,500||5,500||5,500|
|Defined Contribution Limits – 415(c)(1)(A)||50,000||49,000||49,000|
|IRA Contribution Limit – 219(b)(5)(A)||5,000||5,000||5,000|
|IRA Catch-Up Contributions – 219(b)(5)(B)||1,000||1,000||1,000|
|IRA AGI Deduction Phase-out Starting at|
|Single or Head of Household||58,000||56,000||56,000|
|SEP Minimum Compensation – 408(k)(2)(C)||550||550||550|
|SEP Minimum Compensation – 408(k)(2)(C)||250,000||245,000||245,000|
|SIMPLE Maximum Contributions – 408(p)(2)(E)||11,500||11,500||11,500|
|Catch-up Contributions – 414(v)(2)(B)(ii)||2,500||2,500||2,500|
|HCE Threshold – 414(q)(1)(B)||115,000||110,000||110,000|
|Defined Benefit Limits – 415(b)(1)(A)||200,000||195,000||195,000|
|Key Employee – 416(i)(1)(A)(i)||165,000||160,000||160,000|
|457 Elective Deferrals – 457(e)(15)||17,000||16,500||16,500|
|Control Employee – 1.61-21(f)(5)(i)||100,000||95,000||95,000|
|Control Employee – 1.61-21(f)(5)(iii)||205,000||195,000||195,000|
|Taxable Wage Base||110,100||106,800||106,800|
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2022.